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Despite budget crisis, legislative leaders unwilling to address revenue options

  • Author: Nathaniel Herz
  • Updated: September 28, 2016
  • Published August 8, 2015

Gov. Bill Walker believes there's no way to close the state's multibillion-dollar budget deficit without new sources of revenue, like taxes or earnings of the Alaska Permanent Fund, and his administration has been spreading that message for the last two months.

In appearances before local leaders and chambers of commerce, top officials like Revenue Commissioner Randy Hoffbeck and Budget Director Pat Pitney have argued that lawmakers need to pass cash-producing legislation within the next year so the state has enough time to implement it before running out of money.

But as the clock ticks toward the start of the next legislative session, it's not clear that the state's legislative leaders are buying into that view.

In interviews this week, three lawmakers said that in spite of the Walker administration's efforts this summer, the Legislature is unlikely to budge much from its position that deeper spending cuts need to be made before Alaskans sign off on increased taxes or other other new sources of revenue to pay for government. And there's no sign that lawmakers will be holding hearings anytime soon to see what the public thinks.

"Are we going to just jump right out there and tax the working public more? We're going to take people's Permanent Fund dividends away when we haven't examined all these other options fully first?" asked Rep. Mark Neuman, R-Big Lake, the House Finance Committee co-chair. "Not me."

Those comments were echoed by the Senate's majority leader, North Pole Republican John Coghill, who said in an interview that even though revenue-boosting measures should be debated next year, his constituents "still think the government needs to be cut more."

"The governor just hasn't got the message through yet," Coghill said.

The Walker administration, meanwhile, says it's forging ahead with an economic plan that will be unveiled in late September or early October. And it's preparing for what administration officials expect to be a prolonged debate and contentious legislative session starting in January.

"I don't see it as them just writing a check -- it's going to be long and drawn-out. This is a monumental change for the state," said Pitney, Walker's budget director. "It's going to be a tremendous, tremendous discussion."

Deep-pocketed ally

Alaska's fiscal crisis stems from its reliance on taxes and royalties on oil and gas production.

The state hasn't had an income tax since 1980, and a plunge in oil prices last fall left the state with just $2.2 billion in projected revenue this year to pay for its $5.1 billion budget -- a gap that Walker's administration and many fiscal experts say is too big to close with spending cuts alone.

At the current pace of spending, the state's savings are only expected to last for three more years, with next year's budget already locked into place.

In June, as lawmakers concluded a prolonged legislative session by passing an operating budget with $400 million in cuts, Walker convened a two-day conference in Fairbanks on the state's fiscal future.

Participants were asked to re-envision the size and scope of state government and to consider how to pay for it, with the Walker administration simultaneously releasing a digital fiscal model that allows users to tinker with different tax regimes and spending cuts.

During the conference, Walker emphatically proclaimed, "There's going to be taxes," though he didn't say who would be taxed, or how much. Since then, he and his administration have held nearly a dozen informational meetings and lectures around the state, with audiences ranging from the Kenai and Soldotna chambers of commerce to the Fairbanks Rotary Club.

Those sessions have been held with an eye on the Legislature, where lawmakers hold the ultimate power to accept or reject any of Walker's proposals.

"It's an awareness issue," Pitney said. "They have constituents, and they've got to honor their constituents -- and the more we are out there, the more constituents may be aware."

Over the next few months, the Walker administration will have one deep-pocketed ally in its education efforts: the Rasmuson Foundation, whose board has authorized spending up to $2 million to advance discussions about the state's fiscal crisis.

The foundation is preparing to release the results of a poll of 1,200 Alaskans that gathered views on the state's economy and finances. And it may ultimately launch a messaging campaign to lend the budget problem more urgency.

The campaign, foundation president Diane Kaplan said in a phone interview, will be aimed at the general public rather than legislators themselves.

"Elected officials don't care about what the Rasmuson Foundation thinks. They care about what voters think," Kaplan said. "The voters have to urge elected officials to act now and do the right thing."

Like the Walker administration, the Rasmuson Foundation says lawmakers need to act during their next legislative session. So far, though, it's not clear that the general public views the state's fiscal problems with the same urgency.

'All-day, every-day message'

On the Kenai Peninsula, more than 100 people turned out to see Hoffbeck speak at a chamber of commerce lunch last month, said Tim Navarre, a Kenai city council member. But only three people stuck around for a subsequent demonstration of the state's digital fiscal model, according to a report in the Peninsula Clarion.

"No matter what issue it is in this state, it's so tough to get people engaged, to get them to say we're really in a problem," said Navarre, a member of Walker's transition team who participated in the Fairbanks conference. "It's definitely going to take some work."

Others following the discussions, like attorney and blogger Cliff Groh, said that a general level of public awareness of the state's budget deficit has been sharpened over the past few months as the Legislature debated the hundreds of millions of dollars in budget cuts that went into effect July 1.

Still, he added, people are not yet recognizing the depth of the problem.

Groh, who chairs a public policy group, Alaska Common Ground, recalled discussing fiscal issues with a waitress who said she hoped taxes on newly legalized marijuana would close the state's budget deficit -- even though the Walker administration estimates those will generate no more than $20 million next year.

Alaska Common Ground is sponsoring its own forum on the state's fiscal future in mid-September. And the Walker administration will continue with an "all-day, every-day message" through the beginning of next year's legislative session, said Pitney, the budget director.

But those efforts still may not be enough to prod lawmakers to act quickly. Pitney said state legislators haven't shown interest in taking up budget issues in a special session this fall.

And while legislative leaders floated the idea of holding their own budget hearings over the summer, none have been scheduled so far.

"We're trying to figure out what we're going to do if we do it," said Neuman, the House Finance Committee co-chair. "And if we can actually do it, what's it going to take to do it, and what are we going to get out of it? More information to the public would be my hope."

Rep. David Guttenberg, a Fairbanks Democrat, predicted that the Republican-controlled Legislature wouldn't endorse any big fiscal proposals from Walker on political grounds, since the governor is a Republican-turned-independent who was elected last year with support from the Democratic Party.

The two branches of government, Guttenberg said, "have to come together to some understanding of what needs to be done, and you don't have that."

"I think that's what we're looking at until the Legislature changes," he added.

While Republican legislative leaders -- many of whom represent more conservative districts -- have been skeptical about raising new money for the state, other GOP members have said they'd entertain tax legislation.

Rep. Paul Seaton, R-Homer, introduced an income tax bill in April, though finance committee leaders never gave it a hearing. Another tax measure, submitted by Sen. Click Bishop, R-Fairbanks, also never received a hearing.

One thing that will make tax proposals even less likely to get traction in the short term: Next year is an election year, said Coghill, the Senate's majority leader. That will make lawmakers even more wary of voting for tax measures, for fear they'll be used as grist for attacks from their electoral opponents.

Coghill, one of the Senate's most conservative members, said he'd endorse an open debate on taxes, or spending Permanent Fund earnings -- a move that could end up reducing the size of Alaskans' annual dividends.

But before his constituents will give him permission to support ideas like those, he added, "we've got to squeeze government." That means taking measures like layoffs or canceling state employees' cost of living raises -- a move that was debated in this year's budget process but was ultimately shot down.

Constituents are saying they can't give any more to the government, Coghill said, with one man telling him, "You can't get blood out of this turnip."

"I kind of get that," Coghill added. "I'm feeling pretty poor myself."

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